How Long Will You Live? Part II
Your Best Guess Could Be Way-off
Allen J. Davis, CFP® ChFC
People’s ideas about how long they’ll live are often pretty fuzzy. In fact, more than half of adults age 50 or older misjudge their life expectancy by at least five years.
That’s one of the findings from a recent survey. Researchers compared people’s perceptions about their potential longevity to actuarial estimates based on respondents’ age, gender, smoking, and health habits.1 Commissioned by the Society of Actuaries, a professional association that regularly conducts and publishes research, the study has practical implications for us all.
The headline? People’s ideas are, on average, not even close to experts’ estimates. About one-quarter (23 percent) of study participants overestimated their life expectancy by at least five years; a slightly larger number (28 percent) significantly underestimated it by five or more years.
Source: Greenwald & Associates, Longevity Perceptions and Drivers, Society of Actuaries (2020).
The fact that so many people are way off isn’t, on its own, surprising. For decades, psychologists have observed that most are pretty bad at making accurate self-assessments, whether that’s about their skills, health, perceptions, or performance.2 The same thing holds when people assess how many years they have left on this earth.
But that’s not all we can learn from the SOA study. The researchers also asked participants about their health, overall lifestyle, household income, level of education, and gender. All of these factors turned out to be highly correlated with whether the “bad-guessers”— those who were wrong by five or more years — came in above or below the actuaries’ estimates.
Under-estimators: Compared to other survey respondents, people who said they were less healthy, or reported a less healthy lifestyle, had less than a college degree, or had household incomes below $100k were more likely to underestimate their life expectancy.
Over-estimators: Men were more likely than women to overestimate their likely longevity, as were respondents who rated their health as excellent or very good, said they had a healthy lifestyle, had more education, or a household income above $100k.
How Is This Useful?
Underestimating or overestimating how long you’ll live can be bad for your financial health and well-being.
The pitfalls of underestimating: You could run out of money. You might have to lean on family members for financial support. Or, if you eventually require eldercare, you might have to settle for lower-quality options.
The pitfalls of overestimating: You might deny yourself conveniences and pleasures, thinking you can’t afford them. You might miss opportunities to share some of what you’ve accumulated with loved ones, charities, or other organizations who could benefit from it right now. Your estate might be subject to additional taxes after you die—money that you could have spent earlier and, in doing that, reduced future estate taxes.
Understanding that most of us misjudge how long we’ll live should motivate you to reexamine your assumptions. It’s helpful to know whether you might be misjudging, either in one direction or the other.
You can get a quick reality check by looking at the Center for Disease Control’s Life Expectancy projections. Remember that these are averages for the total population or within a specific age bracket and have not been adjusted for specific risk factors or for Covid, which will ultimately lower life expectancy to some degree.
You could also try out one or more of the longevity-estimating tools that Mary Young will write about in next month’s newsletter. These instruments will allow you to enter information about your health and lifestyle, which customizes the estimate to some extent.
Once you’ve pressure-tested your assumptions about how long you’ll live, you’ll be in a better position to plan for your financial well-being.
1 Greenwald & Associates, Longevity Perceptions and Drivers, Society of Actuaries (2020).
2 David Dunning, Chip Heath, and Jerry M. Suls, “Flawed Self-Assessment: Implications for Health, Education, and the Workplace,” Psychological Research in the Public Interest, Sage (2014).
Securities and investment advisory services and financial planning services offered through qualified registered representatives of MML Investor Services, LLC, member SIPC, Supervisory office: 300 Whitney Avenue, Suite 600, Holyoke, MA, 01040, Tel: 413-539-2000. The Davis Financial Group, LLC is not a subsidiary or affiliate of MML Investors Services, LLC.